OpenAI needs ‘more capital than we imagined,’ turns profit

OpenAI said Friday that in moving toward a new for-profit structure in 2025, the company will create a public benefit corporation to oversee commercial operations, removing some of its nonprofit restrictions and allowing it to function more like a high-growth startup.

“The hundreds of billions of dollars that large companies are now investing in the development of artificial intelligence shows what it will really take for OpenAI to continue to pursue the mission,” OpenAI’s board wrote in a post. “Once again, we need to raise more capital than we envisioned. Investors want to back us, but, at this level of capital, they need conventional equity capital and smaller structured orders.”

The pressure on OpenAI is tied to its $157 billion valuation, achieved in the two years since the company launched its viral chatbot, ChatGPT, and started the boom in generative artificial intelligence. OpenAI closed its latest $6.6 billion round in Octoberpreparing for aggressive competition Elon Musk xAI as well as Microsoft, Google, Amazon and Anthropic in the market that is it is projected to exceed $1 trillion of income within a decade.

Developing the large language models at the heart of ChatGPT and other generative AI products requires constant investment in high-powered processors, which mostly provide Nvidiaand cloud infrastructure, which OpenAI mainly gets from its biggest backer, Microsoft.

OpenAI expects about $5 billion in losses on $3.7 billion in revenue this year, CNBC reports confirmed in September. Those numbers are growing fast.

By transforming into a Delaware PBC “with common stock,” OpenAI says it can continue commercial operations while separately staffing its nonprofit arm and allowing that wing to take on charitable activities in health, education and science.

The nonprofit will have a “significant interest” in PBC “at fair value as determined by independent financial advisors,” OpenAI wrote.

OpenAI’s complicated structure as it exists today is the result of its creation as a non-profit organization in 2015. It was founded by CEO Sam Altman, Musk and others as a research lab focused on artificial general intelligence, or AGI, which was a completely futuristic concept at the time.

In 2019, OpenAI intended to abandon its role as a purely research lab in hopes of functioning more like a startup, so it created a so-called limited profit model, with the nonprofit still controlling the entire entity.

“Our current structure does not allow the Board to directly consider the interests of those who would fund the mission and does not allow nonprofits to easily do more than control for-profits,” OpenAI wrote in a Friday post.

OpenAI added that the change will “allow us to raise the necessary capital on conventional terms like our competitors.”

OpenAI’s efforts to restructure itself face major obstacles. The most notable is Musk, who is in the middle of a fierce legal battle with Altman potentially having a significant impact on the company’s future.

In recent months, Musk has sued OpenAI and asked the court prevent the company from converting from a non-profit to a for-profit corporation. In posts on Xu, he described the attempt as a “total fraud” and claimed that “OpenAI is evil.” Earlier this month, OpenAI hit back, stating that In 2017, Musk “not only wanted, but actually created, a for-profit company” to serve as the company’s proposed new structure.

In addition to the conflict with Musk, OpenAI has been dealing with an exodus of high-level talent, in part due to concerns that the company has focused on bringing commercial products to market at the expense of security.

In late September, OpenAI’s chief technology officer Mira Murati announced that it would leave the company after 6½ years. On the same day, head of research Bob McGrew and Barret Zoph, vice president of research, also announced their departures. A month earlier, co-founder John Schulman said he was leaving for rival startup Anthropic.

Altman said during a September interview at Italian Tech Week that the recent CEO departures were unrelated to the company’s potential restructuring: “We’ve been thinking about it – our board – for almost a year independently, as we think about what it takes to get to our next phases,” he said.

These were not the first outings of big names. In May, OpenAI co-founder Ilya Sutskever and former head of security Jan Leike announced their departuresand Leike also joined Anthropic.

At the time, Leike wrote in a post on social networks that his decision was due to disagreements with management over the company’s priorities.

“Over the years, safety culture and processes have taken a backseat to great products,” he said wrote.

One employee, who worked under Leike, quit shortly after him, writing on X in September that “OpenAI was structured as a non-profit but operated as a for-profit.” The employee added: “You shouldn’t trust OpenAI when it promises to do the right thing later.”